Net Asset Value, or NAV, is the price of a unit of a fund. Simply put, it is the market value of securities held by a scheme you choose to invest in. The NAV of a scheme varies on a day-to-day basis due to the change in market value of securities. So when a fund issues an NFO, it is generally priced at Rs 10. Later, depending on the value of the investment, this price could rise or fall.
NAV makes no difference to a fund's returns. That means if the NAV is low, it doesn’t mean the fund has become cheaper. The returns on your investments will depend on the stock selection. Remember, NAV is not an indicator of mutual fund performance.
For argument sake, let’s say a low NAV would imply a higher number of units and a high NAV would show a lower number of units. To cite an example, say, you invest Rs 5,000. It would get you 500 units with an NAV of Rs 10 but only 100 units if the NAV is Rs 50, assuming there is no entry load. Yet, in both cases, the value of the investment is identical. So Rs 5,000 invested in each would show the same gain. The 500 units (for which you paid Rs 10 per unit) would rise to Rs 5,500 at Rs 11 per unit. The 100 units (for which you paid Rs 50 per unit) would rise to Rs 5,500 at Rs 55 per unit.NAV is important when dividends are to be received because they are paid out on face value. The confusion arises only when NAV is viewed like a stock price.